Lycos-USA Networks Fail to Wow Stockholders

The door slammed shut last week on efforts by Lycos Inc. and USA Networks Inc. to forge a Net marketing powerhouse, leaving some e-commerce industry watchers shaking their heads at an environment where the chances of a merger forming a viable business often doesn't count as much as how much instant appreciation Net firms' stockholders get out of their shares.

Hopes for the deal -- which was to combine USA Networks' Home Shopping Network and Ticketmaster Online-Citysearch Inc. operations with No. 1 Internet portal Lycos -- lingered three months before collapsing in the face of resistant Lycos stockholders. Some shareholders -- in particular technology investment firm CMGI Inc., Andover, MA, which owns more than half of Lycos -- thought they deserved a better premium on their stock.

"Since the deal was announced about three months ago, we've clearly been fighting the tape with what would have been the first merger of Internet assets and traditional [media]," said Bob Davis, CEO of Lycos, Waltham, MA. "In my mind, it's clear that when we put the transaction together, that a lot of people misjudged how difficult it might be to value that type of transaction."

USA/Lycos would have hit the ground running with more than $1.5 billion, a reach of 70 million television homes and daily outflow of 200,000 products. It would have had access to about 30 million Net users as well -- all of which makes the way Wall Street balked at the deal difficult to understand, said Melissa Bane, director of Internet market strategy at the Yankee Group, Boston.

"The commerce infrastructure that USA Networks brings to the table, combined with Ticketmaster-Citysearch and the local e-commerce play they bring, combined with the Lycos network would have made Lycos-USA the preeminent commerce portal on the Web," she said.

But Lycos shares dove 26 percent immediately after plans for the deal were announced, and the company faced a fusillade of stock rating downgrades from Wall Street investment houses. The firms cited a poor premium for Lycos shares. Lycos has yet to earn an annual profit but has finished in the black on a quarterly basis.

"Wall Street is complaining that they feel there's an Internet stock bubble, but when it comes to getting a premium on an Internet acquisition, they're the first ones in line," Bane said. "Not all these deals are being looked at for their strategic potential. Many of these deals are being looked at for what the stock bump will be."